Foreclosure is a legal process by which a mortgage lender takes away a borrower's right to own his property. The lender proceeds to sell the property at a public auction only when the borrower falls behind on loan payments thereby being unable to follow the terms and conditions of the loan agreement.
The lender starts the proceedings depending upon the terms and conditions on the loan agreement, the note and the mortgage that you signed at loan settlement. There are loans having acceleration clause which allows the lender to call the loan due earlier. Otherwise, whenever a loan is around 150 days past due, the lender files foreclosure. Even after the filing is over, the borrower can occupy the property till the date of sale.
How long can borrower occupy property after the sale?
After the sale is over, the new owner may send a 3-day notice to the borrower so that he quits the property. In case, the borrower does not move out, the new owner may file an eviction lawsuit against him. As per the orders of the local Sheriff, the borrower has to leave the property with or without personal items within a month depending upon the state laws.
Does the borrower pay for deficiency?
If the lender is unable to recover the unpaid loan balance, the borrower has to pay for the deficiency between the unpaid debt and the sale price. However, some states have anti-deficiency laws according to which a borrower need not pay the deficiency if the loan is a purchase money mortgage taken for buying a property which is his primary residence. Such laws are inapplicable on second mortgages and properties which are not used as the borrower's primary residence.
Can borrower get back property after the sale?
The borrower has the right to save or repossess his property even after the sale. This can be done by paying the purchaser the amount at which he bought the property along with the interest accrued from the time of sale. But a lot depends on whether the purchaser is willing to sell off the property. However, the borrower can occupy the property as a tenant if the purchaser is willing to rent out his home.
What are the effects of foreclosure?
The process helps to wipe out all subordinate liens. If the subordinate lien holders want to recover their interest, they need to bid for the property at the foreclosure sale. They also have the chance to redeem the property by paying the lender the required amount after the sale is over.
As far as borrowers are concerned, they'll have an unfavorable credit rating on their credit report for about 7 years from the foreclosure sale. Hence, they may not be able to qualify for home loans within a few years and even if lenders are willing to sign a deal with such borrowers, they are likely to charge high interest rates of interest.